Pension Buyout Costs Level in January

March 20, 2014 (PLANSPONSOR.com) – For the United States, the estimated cost, as a percentage of accounting liability, of a retiree annuity purchase remained level during January at 108.5%, according to the Mercer Global Pension Buyout Index.

In addition, the index findings for the U.S. mention the
release of the Society of Actuaries new mortality tables, which predict longer
life expectancy than those usually used to determine a plan’s accounting
liability. Mercer expects this to cause a larger increase in accounting
liabilities than insurer pricing, causing a decrease in buyout premiums.

For Canada, the index finds the estimated cost of a
pension annuity transaction was about 0.3% lower in January than in December
2013. As such, for each $100 million of pensioner liabilities settled, the
relative cost of a pension annuity transaction versus accounting liability
would have been around $0.3 million lower.

For the United Kingdom, the index finds the estimated
cost of a pension annuity was 2% in January 2014 than in January 2013. For a
plan with pensioner liabilities of £1 billion, the relative cost of a pension
annuity transaction versus accounting liability would have been around £20
million higher in January 2014 than in January 2013.

As for Ireland, the index shows the estimated cost of a
pension annuity on a traditional annuity basis was approximately 2% lower in
January 2014 than in December 2013. Compared to January 2013, the relative cost
of a buyout has decreased by 4%.

The index allows for the monitoring of the general trend in
pricing of pension annuity transactions in the United States, Canada, the
United Kingdom and Ireland. Mercer uses up-to-date pricing information from
each of the four countries to estimate the cost of insuring a sample plan’s
current retirees as a percentage of the equivalent estimated accounting
liability in each country. To produce the estimates, pension liability has been
measured according to local standards in each country.

More information about the Mercer Global Pension
Buyout Index can be found here.